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Holiday pay issues for schools – what you need to know

Do you need to take steps to protect your school against holiday pay claims?

Some local authorities have recently written to academies and maintained schools asking them to enter into new agreements with their staff, setting out how much they will receive when they take a holiday and settling possible back pay claims. In some cases, local authorities are offering to meet the cost of historic liabilities. We set out the factors you need to consider before making a decision.

What has to be included in holiday pay?

You might think that this should be a straightforward question, but it is proving to be one of the biggest and potentially most costly employment issues employers are facing. There are over 21,000 holiday pay claims currently outstanding in Scotland and whilst we don’t have precise figures for England and Wales, these are likely to be similar.

John Lewis announced that it had miscalculated holiday pay and had underpaid its staff and put aside £52 million to compensate them. Many organisations have also made changes to their holiday pay calculations either voluntarily, or because of pressure from their workforce or from recognised unions.

Does paid overtime have to be included?

The law states that workers are entitled to a week’s pay for each week of holiday taken.

This is complicated by the fact that different provisions apply to workers with and those without normal working hours. Those without are entitled to be paid based on all earnings over 12 week average (including overtime). Those with normal working hours (such as 9-5) are paid the amount they would have received had they worked those hours. This will be the case for most permanent teachers.

Paid overtime is excluded from the calculation unless it forms part of the minimum number of hours the employee is required to work (this is known as guaranteed overtime and is rare in the education sector). Non-guaranteed overtime (overtime the employee is expected to work if offered) and voluntary overtime are excluded from the payments.

This has now been challenged and, as a result, other forms of overtime that are regularly worked will have to be included in the calculation.

There is no definition of what constitutes regular, but is likely to include most overtime patterns, other than those which are genuinely ad-hoc. The UK cases only applied to non-guaranteed overtime, but the principles are likely to apply to all forms of overtime.

What about allowances?

The extent to which these payments must be included will depend upon whether the payment is intended to cover occasional costs incurred by the worker, such as travel or subsistence expenses, or are linked to productivity or the work in some other way. Only those linked to productivity have to be included. This is likely to include all of the specific allowances mentioned above.

Does the requirement to include overtime and allowances apply to all paid holiday the worker takes?

No. These payments only have to be included for the first four weeks holiday taken by the worker as this was the minimum provided under the European Working Time Directive but not to the additional 1.6 weeks leave that the UK Government gives us under our domestic legislation, or to any additional contractual leave granted to staff.

How far back can workers bring claims?

Workers will be able to bring claims in the Employment Tribunal under the Working Time Regulations or as a series of unlawful deductions from wages.

However, both claims have to be brought within three months of the date of the underpayment otherwise they will be brought out of time and the Tribunal will not be able to hear them. In addition, a worker cannot claim that he/she has suffered a ‘series’ of deductions (and so potentially go back many years) if there are more than three months between payments where there is a shortfall. This will limit the extent to which most workers can bring claims to their current leave year.

The law has also recently been changed to limit claims to two years.

What should schools do now?

Review the contracts of those staff actually undertaking overtime or receiving allowances. In respect of overtime, are there any patterns of overtime that emerge? Non-guaranteed overtime that is regularly worked should be included in holiday pay (but can be limited to the 20 days required under the Directive). It is also sensible to treat voluntary overtime in the same way as the UK courts are likely to rule, when this issue comes before them, that voluntary overtime has to be included.

Decide whether to limit pay to the first 20 days leave taken each holiday year. If this option is taken, schools must ensure that their payroll systems have the ability to adjust holiday pay in each holiday year to differentiate between the first 20 days paid leave and all other paid leave.

Decide on a strategy and in particular consider:

Whether to start paying the correct amount without accounting for any historical underpayments (once three months has passed, the workers will not be able to bring claims for any underpayments made for holiday).

Reaching agreement with affected staff about any underpayments.

Whether to treat voluntary overtime differently until the UK courts rule on this.